DUBLIN, Ireland–An enormous deficit has been discovered in the pension fund that covers thousands of credit union employees in this country.
According to The Irish Independent, the €78 million deficit is so large it has the potential to financially destabilize the sector.
“The shortfall has ballooned from just €6 million in 2017. It hit €20 million in 2020, but it has jumped to €78 million for this year, due to the impact of low interest rates on the scheme,” the Independent reported.
The retirement program is overseen by the Irish League of Credit Unions and covers staff in that organization along with employees in affiliated credit unions.
“The shortfall will have to be made up by individual credit unions that are members of the league,” the Independent reported, citing a memo from pension advisers to the league marked “confidential” that the publication said it had reviewed. “There are now fears the debacle will lead to mass resignations of individual credit unions from the league…”
Executives ‘Annoyed’
According to the Irish Independent, credit union executives are annoyed they were given no forewarning about the rapidly deteriorating state of the scheme after being summoned to online meetings, with some expressing surprise at the “extent of the financial mess it is in.”
“Although the funding shortfall will be made up over a number of years, the overall cost of the rescue will have to be booked this year,” the Independent reported. “This was likely to push a number of credit unions into a loss-making situation, senior sources in the movement said. This, in turn, could mean their reserves become depleted, something that will raise huge concerns for the Central Bank, which regulates the sector.”
Several Thousand Employees Affected
The Independent reported there are approximately 1,000 credit union employees who have been paying into the retirement scheme, with another 1,000 scheme members made up of retired staff and those who have yet to retire but have moved jobs. The scheme is a defined-benefit one, which means employees are promised a set pension based on their years of service and final salary, the report added.
“These schemes are being phased out as they are horrendously expensive to fund,” noted the Independent. “The huge deficit in the Irish League of Credit Unions Republic of Ireland Pension Scheme has prompted panicked league board members to call in experts from PwC to outline options for dealing with the black hole in the scheme, and how to fund it. It is so heavily in the red that PwC has recommended that from next month it should be closed off to new members, and no new pension benefits should accrue to existing staff, who will be switched to a different scheme.”
Employees’ Plan Being Transferred
The Independent said credit union employees have been told they will be transferred to a defined-contribution scheme. The league stressed the rescue plan would protect the benefits the staff had built up in the past.
Around 100 credit unions and the league staff are part of the scheme after a number of credit unions pulled out in the last few years due to the expense of funding it, the Independent said. The contribution level has been 33.2% of each staff members’ wages.
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